This website uses cookies to ensure you have the best experience.

# Banking And Finance Essay

1958 words - 8 pages

Assignment Package 2 (Weight in total marks-20% )
Each of the following question carries 2 marks

From Chapter 6
Q1. What is risk premium? How is it measured? When there is an increase in the default risk on corporate bonds (due to bad economic conditions), what will happen to risk premium. Will it shrink or widen? Why?
(See pages 120-22 3rd edition) (see page 114-115 4th edition)

Default risk occurs when the issuer of a bond is unable or unwilling to make interest payments when promised or pay off the face value when bond matures. This could happen to a corporation suffering high losses due to bad economic conditions. Canadian Government bonds are considered to have no ...view middle of the document...

6% and 0.8%. What are the current interest rates for 2-year, 3-year, 4-year and 5-year bonds?

(See pages 133-36, 3rd edition) (See pages 127-129 4th edition)

Interest rate on 2 year bond
i2t = {(10%+9%)/ 2} + 0.2% = 9.7%
Interest rate on 3 year bond
i3t = {(10%+9%+8%)/ 3} + 0.4% = 9.4%
Interest rate on 4 year bond
i4t = {(10%+9%+8%+7%)/ 4} + 0.6% = 9.1%
Interest rate on 5 year bond
i5t = {(10%+9%+8%+7%+6%)/ 5} + 0.8% = 8.8 %

From Chapter 7

Q3 Match the following.

|(a) Random Walk |(i)future changes in stock prices should, for all practical |
| |purposes, be unpredictable |
|(b) Price bubbles |(ii) Investor expectations are equal to optimal forecasts using |
| |all available information |
|(c)In a Gordon’s dividend growth model(which assumes constant |(iii) If the current price of the stock differs from the present |
|dividend growth in future), |value of the stock’s future expected dividend payments. |
|(d) The current price of |(iv) the stock price depends positively on the expected future |
|a stock share will increase if |growth rate of |
| |dividends and negatively on the expected future rate of return on|
| |stocks. |
|(e)Efficient Markets Hypothesis for financial markets in its |(v) The prices of securities reflect their true fundamental |
|first (i.e., weakest) form |(i.e., intrinsic) values. |
|(f) the Efficient Markets Hypothesis for financial markets in its|(vi) the dividend growth rate, g, increases in the constant |
|third (i.e., stronger) form |dividend growth model . |

Which of the following is not a correct matching pair (answer)

(a, i); - Correct
(b, iii); - Correct
(c, iv); - Correct
(d, vi); - Correct
(e, ii); - Correct
(f, v); - Correct
(c,i ) - Incorrect

Q4. Let’s apply the constant-growth model to IBM. Assume a dividend has just
been paid. The next dividend, to be paid in a year, is forecast at DIV1 = \$3, the growth rate of dividends is g = 8 percent, and the discount rate is r = 12 percent.
Solve for the stock value. Hint, Apply generalized dividend(Gordon’s constant growth) model, Select...

## Other Papers Like Banking and Finance

### Finance And Banking Essay

259 words - 2 pages An investor recently purchased a corporate bond that yields 9%. The investor is in the 36% combined federal and state tax bracket. What is the bond’s after-tax yield? (2-2) Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds? (2-3) Molteni Motors Inc. recently reported \$6 million of net income. Its EBIT

### Banking and Finance Essay

2524 words - 11 pages price of assets such as stock and bonds that the financial institution owns that can lead to profits or losses. 4- Is everybody worse off when interest rates rise? No. People who borrow to purchase a house or a car are worse off because it costs them more to finance their purchase; however, savers benefit because they can earn higher interest rates on their savings. 5- What effect might a fall in stock prices have on business investment

### Information Technology (It) for Improving Banking Activities: - a Study on International Finance Investment and Commerce Bank Ltd

1395 words - 6 pages PROJECT PAPER ON Information Technology (IT) for improving Banking Activities:- A study on International Finance Investment and Commerce Bank LTD Thesis for the partial fulfillment of BBA program of BBA (I) in Management Studies PROJECT PAPER ON Information Technology (IT) for improving Banking Activities:- A study on International Finance Investment and Commerce Bank LTD Under supervision ------------------------- Prof. Md. Mosharraf

### A Letter to My Parents

571 words - 3 pages . Banking began to regain prominence in Europe several centuries later. MEDIEVAL TIMES Records show that there were banking activities in Genoa and other Italian cities during the 12th century. Italian cities became the centers of warehouse trade, and they developed local banking systems. The most famous of these were those in Champagne, France. They had their own system of finance through ambulatory bankers. International financers were

### History & Development

4310 words - 18 pages Islamic Banking and Finance: History Development Slide #1 Some Issues History Of IBF Development of IBF -Overview- 2. Islamic Banking and Finance: History and Development History and Development of IBF in Bahrain Full Fledged IB vs. IB windows • Word ‘bank’ comes from the word ‘banco’ - A table or a bench on which Italian money-changers used to display their monies and records and conduct their transactions History of

### 2401 Exam 07

1340 words - 6 pages OFFICE USE ONLY AFF/AFW2401 Replacement Paper 24.5.07 Page 1 of 18 Monash University Semester One Examination 2007 Faculty of Business and Economics Department of Accounting and Finance EXAM CODES: AFF/AFW2401 TITLE OF PAPER: COMMERCIAL BANKING AND FINANCE EXAM DURATION: 3 hours READING TIME: 10 minutes THIS PAPER IS FOR STUDENTS STUDYING AT: (office use only - tick where applicable) Berwick Clayton Peninsula Distance Education

581 words - 3 pages Land Development Bank Limited (Progoti Bank) Non schedule bank: 1.Ansar VDP Unnayan bank 2.karmashangosthan bank 3.probashi kollyan bank 4.jubilee bank Non-banking financial institutions 1. Investment Corporation of Bangladesh (ICB) 2. Uttara Finance and Investments Limited 3. United Leasing Company Limited 4. Union Capital Limited 5. The UAE-Bangladesh Investment Company Limited 6. Saudi

### Islamic Finance

607 words - 3 pages This essay will provide a comparison between Islamic Finance and conventional Finance principles. In order to do this, firstly it is necessary to determine the scope and establish some of the fundemental concepts that define Islamic Finance, or "Sharia compliant banking" as it is often referred to. After this, it will be possible to discuss some of the advantages that Islamic Finance institutions have over the typical conventional banks. As

### Universal Banking

1505 words - 7 pages to monitor the firm's activities. Disadvantages of Universal Banking • Grey Area of Universal Bank. The path of universal banking for DFIs is strewn with obstacles. The biggest one is overcoming the differences in regulatory requirement for a bank and DFI. Unlike banks, DFIs are not required to keep a portion of their deposits as cash reserves. • No Expertise in Long term lending. In the case of traditional project finance, an area

### Marriott Case Study

759 words - 4 pages INDUSTRY RELATED WORD LIST Investment Banking Consultant private equity Leadership venture capital Re-engineering techniques Corporate finance systems professional project finance strategic planning valuation case research methods financial analysis SAP forecasting BAAN competition analysis Peoplesoft country and risk analysis CFA MIS data modeling Commercial Banking relational databases lending

### Green Banking

5340 words - 22 pages . Green banking as a concept is proactive and smart way of thinking with a vision for future sustainability of our only Spaceship earth. (Richard Buckminster Fuller, 16 November 2012). It evaluates all the factors before giving the loan whether the project is environment-friendly and has any implication on the future people and planet. Green finance as a branch of green banking makes significant contribution to the transition to resource efficient and

## Related Essays

### Islamic Banking And Finance Essay

2772 words - 12 pages Islamic Modes of Finance Theory and Key Shariah Principles Modes Of Finance • Two are ideal modes which provide an alternative to interest banking and if implemented on a national level will result in much fairer distribution of wealth in society 1. Mushaarakah – ‫رآ‬ (equity finance) 2. Mudhaarabah - ‫ر‬ (equity finance - sleeping partner) • Two are not ideal as they replicate the effects of conventional banking but nevertheless are

### Commercial Banking And Finance Essay

3798 words - 16 pages and assets (Flannery 1980). A market rate change endangers bank profitability only if asset and liability returns adjust at significantly different speeds (Flannery 1980). Low interest rate increases bank profit The Federal Reserve has signalled that the interest rate will rise due to a slowing inflation and a sluggish economy (Kopecki 2010). The activities of reduced interest rates in order to boost profits of banking sector had been closed

### International Banking And Finance Essay

806 words - 4 pages An Introduction to Multinational Enterprises and International Finance (WEEK 1) â€“ CHAPTER 1&2 SLIDE | NOTES | 3 | * There is a continuum of business environments from very similar to very different. * The term â€œmultinationalâ€ implies â€œcross-border.â€ However, multinational financial management can take place within a nationâ€™s borders (e.g., Canada or Belgium) or even outside any nationâ€™s borders (e.g., external

### Banking And Finance Essay

285 words - 2 pages . What is a financial intermediary? B. Describe and provide examples of the different categories of financial intermediaries, highlighting any differences among them. (4) Economists have argued [C.Y. Thomas] that Caribbean development has been retarded because the economies do not have sufficiently well-developed financial markets. Does this view sound reasonable? (5) A. Why is understanding and study of finance seemingly becoming so